One thing that every homeowners association should have is comprehensive insurance coverage. Insurance, of course, comes in several forms, though one of the most important is an HOA master insurance policy.
Understanding an HOA Master Insurance Policy
A homeowners association master policy, often referred to as simply HOA insurance, is a form of insurance designed to protect HOAs. Standard master insurance policies typically cover two things:
- Property damage to any structures or shared spaces that the HOA owns; and,
- Liability expenses that the HOA is responsible for, including if a guest becomes injured in a common area.
This type of policy differs from homeowners insurance in that it covers things owned by the association itself. Individual homeowners or condo owners will generally still need to purchase their own insurance to cover their personal residence and belongings.
An HOA master policy is essential to homeowners associations because it offers financial protection. For instance, if a guest slips and gets injured on HOA property, insurance can cover the cost of the guest’s medical expenses. If that guest decides to sue the association, the HOA will not need to tap into its own funds. Instead, the master policy can pay for the cost of legal fees and attorney’s fees as well as any monetary damages the HOA is ordered to pay (if any).
Similarly, if an HOA building becomes damaged due to a covered peril, a master policy can cover the cost of repairs or replacement. This means HOAs won’t have to use their own funds or levy special assessments to pay for the expenses.
Types of HOA Master Insurance Policy
There are three kinds of HOA master policies: bare walls in coverage, single entity coverage, and all-in coverage. Let’s break them down further below.
1. Bare Walls in Coverage
As its name suggests, a Bare Walls in Coverage policy provides bare minimum protections. This policy usually only covers the structure of the building, specifically the drywall, insulation, and studs.
2. Single Entity Coverage
A Single Entity Coverage policy includes the same protections as a Bare Walls in Coverage policy but with additional protection for the interior structure. It can also extend to the outside of the walls, top flooring, bathroom fixtures, and cabinets. Other names for this type of master policy include walls in coverage and studs in coverage.
3. All-In Coverage
The third type of master policy, the All-In Coverage policy, is the most comprehensive. It offers the same protections as the single entity coverage policy but takes things up a notch by covering built-in appliances as well. An all-in coverage policy can also cover unit improvements and modifications.
Who Pays for HOA Insurance?
While the homeowners association technically pays for HOA insurance, the funds really come from the owners. Homeowners have an obligation to pay regular dues or fees to the association as determined by the annual budget. This budget includes projections for insurance premiums, including premiums for the HOA master insurance policy. Because homeowners share the use of common areas, it makes sense for homeowners to share the expenses needed to maintain these areas as well.
How to Get HOA Master Insurance Policy
Taking out a master insurance policy may seem easy on paper, but there are a few things that go into it that not many people know. Whether you’re on the board of your HOA or are involved in HOA management in any way, here are the steps for getting a master insurance policy for homeowners associations.
1. Determine Needs and Budget
First of all, it is important to assess the needs of the association. What type of coverage is the HOA looking for? Obviously, a more comprehensive policy will cost more, but it does offer better protection. Conversely, some board members or managers might feel tempted to save a buck and go for the cheapest option. This will not bode well for the HOA, though, once a risk occurs and it is not covered by the association’s insurance.
2. Scope Out the Market
Once you have determined your needs and set a budget, it is time to examine your options. Don’t be afraid to shop around for a good deal. You can search online for the best insurance providers or ask around for recommendations. Again, cheap does not always mean good, and an insurance provider’s low prices can very well reflect the quality of their service.
3. Ask for a Quotation
Reach out to your list of prospects and ask them to provide you with a quotation. Make sure to let them know what type of coverage you want for the HOA, the target coverage limit, and your budget. Providers will be able to come up with a proposal with these details in mind. But, make sure to standardize your request for a proposal so that you can compare apples to apples.
4. Check Reviews and References
Cost is not the only thing you should take into account when searching for an insurance provider. Some may offer great deals but fail miserably when it comes to customer service. Be sure to do some research and check the company’s reviews. If they have any references to give you, contact them as well. Ask about the provider’s claims process and if clients had any negative experience whatsoever.
5. Evaluate Yearly
Insurance is not something you can just set and leave behind. As an HOA community grows and evolves, its insurance needs may change. And you don’t want to be stuck with inadequate coverage. Therefore, make sure to review your insurance needs and policies every year. The process should include re-evaluating your needs as well as your insurance provider. If your provider has not performed well, don’t hesitate to make a switch.
What Other HOA Insurance Policy Should You Get?
Besides an HOA master insurance policy, there are other types of coverage all homeowners associations should have.
- Property Value and Replacement. Buildings that belong to the HOA must be insured for the property’s full replacement cost. There are three building ordinance coverages: contingent liability (coverage A), demolition (coverage B), and cost of construction (coverage C).
- D&O Insurance. Another essential form of HOA insurance coverage is D&O insurance. This applies to directors and officers and provides coverage for indemnity, defense costs, liability claims, and errors.
- Workers’ Comp. Whether your HOA employs workers or not, workers’ comp is vital. It can cover the employees of vendors and contractors as well as volunteers in the event they are injured on the job.
- Crime and Fidelity. This type of insurance protects the actual money in the association’s operating and reserve accounts. It covers check fraud, false invoices, embezzling, wire fraud, and computer fraud.
A Lesson to Be Learned
Insurance is something that no homeowners association should ever go without. One of the most important types is an HOA master insurance policy, which offers coverage for property damage and liability expenses. If an HOA does not have proper or sufficient coverage, it will, without a doubt, eventually find itself in financial trouble.
Tracking your insurance policies can be hard, especially if you’re doing it manually. Automate your process and know when your insurance has expired with the help of Condo Manager. Call us today at 800-626-1267 or contact us online for a free demo.
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